Monday, July 7, 2014
Over Priced and Selling ....Why?
How Things Become Grossly Over Priced and Actually Sell There Are a Lot of Things that Get Bid Up in the Market Place. Some Have Lasting Over Priced Appeal like Appreciated Fine Art and Others Are Just Quick Price Spikes with Bursting Price Bubbles. Communist Countries Experience the Same Phenomenon Lex Loeb Contributor Network . There is this all too familiar fairy tale story about magic beans that were well worth the price of a productive dairy cow and a lot more. I feel like going to the farmers market with a bag of beans that costs me under $2 at Walmart and selling each one for $100,000.00. I did actually try to market apples for that price at a farmers market because they were just so hard to sell that setting a higher price seemed like just as a futile endevor as selling them for 25 cents a pound. The market was flooded with apples just like mine and nothing distingished mine as having more value than anyone elses. Mine also were not shiny and polished but I decided to market mine as magic apples. The only difference between my $100,000 apples and the regular 40 cents a pound variety was the story line. My apples were not organic but better they were magic. One would think no one would be dumb enough to buy an apple for $100,000? It is perfectly legal , or was before Obama, to sell an apple at any price so I did think I would try. Someone came by my market booth and did offer me $5 for a single apple because they thought the concept of $100,000 apples was humorous. I reduced my price to $5 without bargaining and sold one apple. No body forced the buyer to make such a crazy offer and no one forced me to sell the apple. I was not even so desperate to sell any considering I was also selling them for 25 cents a pound at the time. Beans! High priced magic beans is the way to make real money and fast. Remember Jack? He was the dumb guy in the fairy tale who bought a few beans for a cow worth a jug or two of fresh milk a day for a number of years. He brings the magic beans home to his desperate mother who realizes she is doomed to a financial fate worse than before jack was sent to trade in their one and only major productive asset the dairy cow. Jack's mother tosses the beans out the window in disgust and dispair and the next morning a collosal bean stalk grows into the clouds tipping the farm house off of it's level foundations. The popularity of this stupid old tale is not one that was born in a capitalist era. It might even date to feudal manner house times of europe in the middle ages? The story is about comparative values not supply and demand. There are millions and millions of beans and very few good milk producing cows. The value of the cow was something well understood for 1000s of years. Beans have a rather magical ability to grow fast and become productive. One bean vine or bush can produce hundreds of new beans. Beans are beans and a few of them are not usually worth trading a cow in for. What Jack gets in exchange for the cow is not beans but rather a fantasy of wishes and wish fulfillment. Jack does not get the literary king Midas treatment from the beans but rather get an odesy of strife and challenges to overcome to become victorious with his expensive bean purchase countering the disapproval and disgust of his mother. The story ends where the bean stalk falls to waste, a dead giant has to be burried with considerable labor and Jack and his mother retain their status as peasants albeit more wealthy peasants who have the golden goose that lays golden eggs and other spendid treasures that only peasant farmers could appreciate. There is only one golden goose and it can only lay one egg per day if even that much so it is not going to make peasants permanently rich or give them nobility. Jack is always too stupid to become a prince or a nobelman. Beans! I will sell each of my beans for a new Cadilac or a Lexus. When you find grossly overpriced products in the marketplace where they are actually selling you can think of the Jack and the Bean stalk fairy tale because there are a lot of jacks out there with money. Figuring out what a bean is actually worth takes some analysis. There are millions of ordinary beans but just a few magic ones. The magic beans are the hard ones to find. Occasionally you will find someone with magic beans who is actually willing to part with them in exchange for a cow or a lot of money. Things have intrinsic values. A one once silver piece of silver bullion has a spot price value that is determined by market forces and the cost of finding the metal and creating it. The several that go to market and sell for prices that excede logic are stamped with a pretty picture and often dated. They are encased in a plastic case to preserve them in their original perfect state and they are numbered, coded and come with one or more certificate of authenticity. Something intrinsically worth less than $20 in silver can be competively bid up to over $30,000. The gross over pricing of the silver bullion piece is irration even if that particular stamped piece of metal is "rare" because as it turns out the picture on the coin is an old copy of a design used on minted US silver dollars. All of these factors only have to appeal to one buyer who bids on a coin offered by a seller. Chances are it is a lot more than one bidder where a grossly over pricing occurs. That is gross over priced over the intrinsic material value of the species. Supply is really not necessarily limited because once the market price is set simlar identical bullion coins appear for sale on the market and they can be sold at that existing price, bid up , or God forbid fall in price. The story not supply verses demand seems to attract additional buyers. In a frenzied bidding process a price can go sky high. Somehow prices for some things where prices are set retain the high bidding price when supply is ample but held off the market till a high minimum price is met that pleases the seller. The behavior of pricing seems magical in cases like this. There are other examples like the Beany Babbies craze and bubble that happened more than a decade ago. Talk about beans! A company manufactured cute colorfull plush stuffed animals filled with synthetic beans. The company sold them in vast numbers from a series of catalogs and the bennie babbies became collectable. The company started to publish the high bidding prices that went on for some secondary purchases and even primarya purchases of new designs that they manufactured. Made probably in China, there was no limit to the number of each design that could be produced if the markets wanted to supply demand. The benie baby manufacturing and distribution company was able to manufacture artificial rarity so they were able to sell new animal designs at ever higher prices with an eye to selling the rarest new collectables to those who could afford to pay the most for them. Irrational it was. Not criminal as no one ever was forced to buy one of those beany things. I thought the whole US economy was turning into a beany baby orgy of speculation at the time. A beanie baby crash was coming! Crashes don't just happen when it becomes obvious a bubble is in full bloom any more than a hurricane should end as soon as it is identified as a huricane force storm by meterologists. The beanie baby bubble continued to grow unabaited. I can't remember but I think it crashed about the same time the internet bubble burst and never recovered. By then the owner of the beanie babie empire bought the fancy new four seasons high rise in Midtown Manhattan. He had plenty of money and of course retains the world best collection of benie babies. The four seasons hotel rents rooms that maybe grossly overpriced even by New York City Hotel standards. So it seems that the buyer of the cows made off better in the deal than Jack buying the beans. The benie baby craze ended with virtually all of them going for 25 cents at garage sales and you still find them turning up there. You would need one of the old catalogs to see that people might have once bid some of them up to thousands of dollars in the past and who knows? Maybe a few are still selling at even higher prices on ebay? The high end fine art market is about the same thing as the beanie baby market. The going rate for a better than average original framed Picasso painting is in the tens of millions of dollars upto a hundred million dollars. If Picasso were alive today and could sell his life's work at todays prices he probably would have tens of billions of dollars. Mozart probably would be worth more tha Michael Jackson was if he got royalties at todays rates or could sell downloadable songs and CDs. The cost of sound patterns on CDs is one of the most grossly overpriced things you can find anywhere. The cost of the CD disk is nill compared to the price of a new packaged one by a select artist selling for $15 or more. Picasso shows that Jack does not have to be a peasant to trade in the cow for a couple of beans. The value of over priced Picassos is a combination of factors. For some there may be some sense of greed believing that a future buyer may pay more for the paint on canvass. Others want to associate themselves with someone famous like Picasso as well as the former owners deemed to be rich or more tasteful than others for owning something that becomes worth more not less just hanging on the wall. Buying a Picasso and other similar art works of a variety of styles with extremely famous "listed" artists gives the buyer a ticket to a strange social club membership perception. Owning a Picasso for fifty million dollars gives you instant status, instant Picasso-good taste, instant social distinction and your name gets listed as the buyer and owner with the price you paid never fogotten. Grossly over priced? You could have bought a lot of friends with that much money. A hundred million dollars could be donated to the liberal cause of free beer for everyone at a system of free bars nation wide! You could buy a pretty good size island or a small productive oil company for that much money or a fairly good piece of rental property that would give you income like a small building on Fifth avenue in NYC but the Picasso might have the greater resale value and it comes with other benefit that only owning an original Picasso can get you. A fine painting that other people recognize because they have seen pictures of it or one like it before is like owning a valuable trademark or brand. In more ancient times owners of fine art either had the artists paint them into the picture or actually paint their names on it. Famous living artists could get grand prices in the days prior to photography. Good artists were enlisted in royal courts because of their intrinsic value. There are classic paintings that were almost as valueable in their contempory times of production as they remain today. It is still Jack trading beans for something intrinsically worth more. You might think such crazy things don't happen in good socialist experimental societies or in hard communist countries but alas they do. In the old crumbling soviet union people would get in lines and spend days in those lines on the street waiting for milk , butter and eggs to arrive at the store. The line would be extremely long and people would change places with other family members when they needed to go to bed. The cost of waiting a day or several days is exactly the same as loosing wages you could have other wise worked for even in communist times. Then after a day or several days the person waiting would finally reach the counter and there would be one single pad of butter left. The set communist price for the pad of butter was not necessarily cheap. No one needed butter. Each according to his need. You did not need to wait in line for margerine and it is cheaper. After waiting in line for several wasted days you shell out the equivalent of ten dollars, possibly in actual US currency, because the aluminium rubbles in your pocket are worth less than a beer bottle cap. Obviously butter and bread are luxuries in some parts of the world that should sell well over the intrinsic value because having the butter and walking out of the state owned store with an actual pad of butter was a soviet era status symbol to behold. People would line up on the street oohing and aweing you for actually having waited in line and gotten your small pad of butter. Just about the same type of triumph of buying the Picasso for a hundred million dollars with a different set of commrads impressed by your great shopping accomplishment. Communist and socialist states have more than one form of currency. The monitary currency is not nearly as valuable as political currency. In the old soviet union an inner communist party member and official would not bother to get in the same line as the rest of the people waiting days for orindary butter and meat products. They would have access to government only stores that were much more like western stores and generally took foreign hard currency for purchases. The general public was not allowed to set foot in those stores. Everyone had to show their ID to attempt to go shopping there. Some people could walk in with no money and no credit cards show their face and having anything the wanted sent over to their home with express service on account as high communist officials. This kind of thing still goes on in North Korea and Cuba. Political capital in those countries works exactly the same way money does in ours. A good wink can cost a party official a lot of political capital when he goes shopping mostly for goods that are grossly over priced. The only reason the whole soviet union collapsed is that so many of their upper level communist officials were a bunch of Jacks who sold the country's productive assets for magic beans. .